A government-commissioned review into Whitehall’s spending has concluded that there needs to be an immediate audit of all government IT contracts worth over £100 million.

Leo King
October 11, 2010

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A government-commissioned review into Whitehall’s spending has concluded that there needs to be an immediate audit of all government IT contracts worth over £100 million.

The report, by Topshop boss Sir Philip Green, states there needs to be an investigation into those and other major deals by a “central, experienced negotiating team”, in order to ascertain the demand for the service being provided, the flexibility of the service and how easy it is to cancel the contracts.

The publication of the report appears to be an attempt to set the stage for the government’s Comprehensive Spending Review, due in nine days’ time, in which the Chancellor is expected to announce a raft of measures to cut spending, including in IT.

Today’s report states that IT services procured by Whitehall are often “expensive” and “contracted for too long with no flexibility”.

The lack of centralised procurement, inaccurate spending data, a lack of departmental motivation to save money and inconsistent commercial skills, are all making the government’s £166 billion annual spending on IT, consultancy and travel inefficient, the report states.

In one example – a large deal for software development costing over £100 million per year and with six years left to run – the government is paying over £1,000 per contractor per day, which is “well in excess of market rates”. Part of the reason is that the main supplier is subcontracting work to another company, meaning profit margins are needed on both levels.

Under that deal the government is contracting services it no longer requires. It is unable, given the terms of the deal, to stop the work in those areas and save money.

Another supplier, providing IT services to three departments under different contracts, is charging different rates on each contract. The company was “unable” to standardise the services across the departments because of buying behaviour, the report notes.

Meanwhile, the government is overspending on commodities. While one department bought printer cartridges at £86, an equivalent cartridge was bought by another department at £398.

Of the 60,000 laptops in government, the cheapest was bought at £353, while another department spent £2,000. “At this level of volume, the Government should buy direct from a multinational manufacturer,” the report states. Sir Philip called for “all” commodity purchases in the government to require management authorisation.

Ahead of the publication of the review, which also heavily criticises property costs, Sir Philip told the BBC the government needed to improve its buying standards, adding: "There is no reason why government should not be as efficient as any good business."

Reacting to the news, Mike Rodwell, commercial director at IT supplier Computacenter, which has a number of government contracts, said there needed to be “a two-tier model” for procurement, “where at the commodity end, an open e-auction portal could be created to enable efficient sourcing of low value items from competing companies”. Poor performers could be highlighted by simple ‘user feedback’.

For larger purchases, Rodwell offered fewer ideas, but said the government needed to find a way to tackle the competing frameworks that vie for the same business. This meant suppliers were incurring high upfront costs in an attempt to be on the approved lists, and then needed to recoup those costs in the work. The government needed to improve tendering processes to ensure that “the most able suppliers" can cut costs "while securing a realistic return on their investment”, he said.